What's left for the bulls?

Broker Perspective: Today’s Supply/Demand report could be best summed up by calling it neutral to slightly bearish. For new crop carryout, trade was looking for 651 million bushels and the USDA put out a 650 number today. That is as neutral as these reports get. Bearishness came from the old crop stocks number of 1.021 billion bushels when trade was only expecting 945 million. That number is an obvious sign that demand is slowing faster than trade was expecting. Looking back to the supply side it is important to note two key facts. First is that USDA cut yield down to 123.4 bu/acre. The average trade guess 127.3. This gives the impression that most of the expected yield cut has been done. Given that the crop is more advanced than normal for this time of year, combined with USDA cutting yield aggressively instead of cautiously, suggests that this yield number is likely to stick. Of course there are always minor adjustments that can be made but another sizeable cut is unlikely. Secondly the USDA cut harvest acres by 1.5 million when trade was looking for more. It is reasonable to expect another 500,000 to 700,000 acres to be taken off from the harvested acreage. Bulls still have some fuel in the tank from that expectation as well as the Pro Farmer tour occurring next week. We are all well aware that the crop is poor so we will look for some very low numbers as they report day to day their field findings. As far as yield goes today’s USDA number came in at a level that is tough for bulls to go lower on. This might have taken wind out of their sails for some time now. We look for beans to be in control of this market for now with corn following behind. That also means that any big rains can still pull corn lower as it would likely drive beans lower. Bulls will focus on bad yield numbers next week. Bears will say that yield reduction has, in the least, largely been dropped as far as it will go until harvest.

What’s Left for the Bull Side?: USDA satisfied 95% of the bulls’ hopes today with the 123.4 yield. That is 24% off this year’s 161.4 trend yield. This is very close to the 1988 disaster where yields were 28% off trend. Harvested acres, down by 1.5 million today, will likely see another moderate cut in October. With little left for the bull side we have to suggest this market is now neutral at best…Rich Nelson

Working trades:

(7/16) Sold December corn $10.00 call 10, risk 30, objective 0.

Closing Cattle Commentary

Moderate trading volumes at $119 were seen for live based trading today. That is $1 higher and may be a light disappointment considering this week’s gains in wholesale beef. Traders will be a little disappointed that USDA added 405 million lbs. to its 2012 beef production estimates this morning. They suggest larger placements will hit the end of 2012 more than expected. Combined with the fact delivery notice information is not suggesting futures are underpriced anymore, and this market may steady out for the short term. We are supportive for the longer term. Keep in mind 2013 will see a sharp 3.9% reduction in beef supplies…Rich Nelson